9 Steps to Get Out of Debt

Getting out of debt is the foundation for building wealth, but it requires dedication.

Therefore, your motivation must be strong. Answer these questions to identify and solidify your goals: Why do you want to be debt-free? What is the main thing that keeps you in debt? What is your winning percentage? How will freedom from debt impact your dream? For instance, my motive to build wealth stems from a desire for a platform to positively change the world. I also want to do everything in my power to help my family to walk in the blessings of God. Continually remind yourself of your “why.” It will give you the strength to stick to your debt elimination plan. With that, here’s how to get out of debt in nine steps.

STEP 1: CUT UP OR FREEZE ALL BUT ONE CREDIT CARD.

Break out the scissors and destroy those credit cards. Typically, people only need to carry one card when they’re trying to eliminate credit card debt. Your spending habits will dictate how strict you need to be. Some people literally need to get a metal coffee can, fill it with water, place their cards into the can, and stick it in their freezer! (It needs to be a metal can so you can’t dethaw the card quickly in a microwave.) By the time the water has melted, hopefully the desire to use the credit card for an impulsive purchase will have passed. Find out a method that helps you evaluate your spending decisions and mitigates impulse purchases.

Once you get your system in place, your days of burying yourself in debt will be over! However, don’t cancel your credit card accounts. This will have a significant negative impact on your credit score. Instead, stop using the accounts and pay them off. This will improve your score!

STEP 2: PAY OFF CURRENT CHARGES EVERY MONTH OR STOP USING THE CARD ALTOGETHER.

 If you decide not to freeze your remaining credit card, you need to get serious about how you handle it. Pay off the current charges each month (or, even better, switch to a debit card). The key here is to religiously pay off the card. If you charge $200, then you need to commit to pay $200—not $10 at the end of the month. Even though credit cards give you the option to pay the minimum, paying the balance prevents interest from accruing. The following steps will be difficult if you don’t maintain this step. You need to prevent further debt as you eliminate your backlog of previous debt.

STEP 3: MAKE THE MINIMUM PAYMENT ON ALL DEBTS.

Don’t be sporadic when you attack debt. Start a rhythm. Further along, I’ll show you how to accelerate your plan of attack. But for now, let’s establish a base.

Make the minimum payments regularly on all your debts. Note that this is different than your current credit card balance. That needs to be paid off in full each month. However, if you have credit card debt from the past, you need to at least pay the minimum payment each month. It might take a little while to get into this rhythm, but it’s the foundation for debt elimination (and crucial for a good credit score). After this step, you can begin to accelerate your debt elimination process.

STEP 4: LIST YOUR CURRENT DEBTS.

 List your mortgage, car debt, credit card debt, school loans, and other debts you may have on a spreadsheet. List the debt, the balance, and your current monthly payment (without the taxes and insurance). We just want to look at the hard numbers here. Next, divide the minimum monthly payment into the balance to find the number of months it would take to pay off each debt. Check out the example below of what it might look like when you’re done.

STEP 5: BEGIN WITH THE DEBT PAID OFF THE QUICKEST USING THE MINIMUM MONTHLY PAYMENT.

The key to debt reduction is to attack the debt that can be paid off the quickest first, not the one with the highest interest rate. Most people start with the debt that has the highest interest, and because of that, they never seem to get ahead. It’s more effective to start with the debt that can be paid off in the shortest number of months. According to our sample debt list, that would be starting with Car 1. So, tackle this debt with some oomph!

Back in our younger days, Becky sat down with a yellow legal pad and wrote out all of our expenses and debts (she’s the money manager in our relationship). We had never heard of this debt elimination plan before, but through her intuition, Becky followed steps three through five. What we were able to accomplish was amazing. In nearly 11 months, we paid off everything we owed except our mortgage. This principle allowed us to pay down our debt in an incredibly short period of time, and it can help you, too!

STEP 6: DETERMINE YOUR WINNING PERCENTAGE.

Your winning percentage is the secret sauce to destroying your debt quickly. Your winning percentage is the extra room you have in your budget. In the next step, you’ll allocate that extra amount toward your debt payments. After you list all your expenses like Step 5 instructed, you’ll be aware of how much money is left over in your budget after all your expenses are paid.

As mentioned in the previous chapter, living on 70 to 80 percent of your income is a great practice to begin (meaning that you cover all your expenses within that percentage). Ideally, according to the model we’ve discussed, living on 80 percent would mean that you tithe 10 percent and invest 10 percent. But for people in heavy debt, it would be better to take the 10 percent you would normally invest and use those funds as your winning percentage to get out of debt. So, in this scenario, you would tithe 10 percent and use 10 percent to get out of debt.

 If you live off 70 percent, then invest 10 percent, tithe 10 percent, and keep 10 percent as your winning percentage to pay off debt. To reiterate, a winning percentage is the percent of your income that is not currently used by your budget. If you need 100 percent of your income to pay your expenses, continue to dig around in your budget until you find anything extra to put toward debt elimination.

Here are some questions to help you create a larger winning percentage. These questions are not the most fun to answer, but as we said earlier, it’s important to locate where you are so you know how to move ahead.

• What can I sell?

• What expenses can I reduce or eliminate from my life?

• How can I earn extra money?

 Getting out of debt is like digging trenches—it’s hard work, but when the work is done, the waters can flow.

STEP 7: APPLY YOUR WINNING PERCENTAGE TO THE DEBT THAT CAN BE PAID OFF THE QUICKEST.

In the example from the previous chart, the debt that can be paid off the quickest is Car 1. It can be paid off in 14 months with the minimum monthly payment. Now, let’s say our winning percentage is 10 percent of our combined monthly income (or $540), and add it to the minimum payment of $522. Suddenly, you have an accelerated payment of over $1,000 a month. This accelerates the time frame to seven months. So, now you can pay off this debt in half the amount of time!

STEP 8: ONCE A DEBT IS PAID OFF, APPLY ITS TOTAL MONTHLY PAYMENT TO THE NEXT DEBT.

Now the snowball is really rolling! Since the first debt is completely paid off, apply the total you were paying on the first debt—winning percentage included—to the debt that can be paid of the next quickest. Here’s where we start cooking with grease, so to speak.

Continuing with this example, you would take the accelerated payment from Car 1 and apply it to the next shortest debt: Credit Card 1. Credit Card 1’s monthly minimum is $55.60, but once we add the payment of $1,062.65 from Car 1, our total accelerated payment will be $1,118.25 per month. Now, we can pay Credit Card 1 off in less than two months. Instead of the snowball rolling you over, you’re pushing it!

 Again, when that debt (Credit Card 1) is paid off, you will take the total accelerated payment ($1,118.25) and apply it to the minimum monthly payment of the next shortest debt—Car 2. Add $1,118.25 to Car 2’s minimum payment of $457.12 to get a payment of $1,575.37 per month. Now, Car 2 can be paid off in just over a year instead of four years! Repeat this pattern until you are debt free.

The numbers we’re using here are real numbers. Using this example, I got completely out of debt, including my mortgage, in 84 months (or seven years). You can too!

STEP 9: APPLY YOUR VASTLY INCREASING WINNING PERCENTAGE TO ACCUMULATING ASSETS.

By this point, you will have a huge winning percentage that you can distribute into accumulating assets. The time has come to move toward the Second X. After you complete these steps, take all of the “free money” you have lying around and put it toward something. Begin to build your investment or passive income— Second-X income—by taking those funds and converting them to investments such as real estate, business, and stocks. Build wealth!

Debt elimination is the first step to building wealth. Many people think that getting out of debt is the end of the road. They believe they have nowhere else to go and nothing else to learn. But, friend, that’s not the end. After you erase your debt, you have a new threshold. You are positioned to build serious wealth. Don’t stop now! Continue full speed ahead by acquiring assets, building wealth, and playing the net worth game. Work hard on the First X, and from there it’s onward and upward. Position yourself to build wealth in the Second X. God has money out there with your name on it. In fact, He says there are hidden riches waiting for you in secret places.

I will give you the treasures of darkness and hidden riches of secret places, that you may know that I, the Lord, who call you by your name, am the God of Israel (Isaiah 45:3).

As we dive deeper on this on the topic of wealth building, I will reveal some nuances, or what I like to call “secret sauce,” to finding these riches that God has for us. There is no reason why the wicked should have the most financial influence in the world. I found the money with my name on it, and now I’m at a place where I can give it away. I want to help you reach that place also.

 It’s time for the Body of Christ to let the eyes of our understanding be enlightened. Then we will be able to see, understand, and know that we can walk God’s Road to Financial Freedom. God wants us to be blessed so that we can be a blessing!

SUMMARY

For most people, reaching the First X is their starting goal in the Triple-X Factor, and there are four steps to reach it.

Step 1: Become more valuable.

1. Learn through reading and going through financial programs.

2. Listen by finding a mentor and knowledgeable friends.

 3. Look by observing and questioning how people became successful. Success leaves clues.

Step 2: Learn to live on 80 percent.

With 80 percent going to your expenses—debts, rent, food, fun, etc.—tithe 10 percent, have 5 percent professionally invested, and personally invest the other 5 percent.

Step 3: Know the difference between assets and liabilities.

 Liabilities—items like cars, jewelry, and TVs— depreciate after you buy them and are worth even less later. Assets like real estate, stocks, and businesses appreciate after you buy them and are worth even more later.

 Step 4: Building the First X: Eliminate debt.

We looked at nine steps to get out of debt:

 1. Cut up or freeze all but one credit card.

 2. Pay off credit charges monthly or quit using the card altogether.

3. Make the minimum payment on all debts.

 4. List your current debts.

5. Begin with the debt paid off the quickest using minimum monthly payment.

6. Determine your winning percentage.

 7. Apply your winning percentage to the debt paid off the next quickest.

8. Once a debt is paid off, apply its monthly payment to the next debt.

9. Apply your vastly increasing winning percentage to accumulating assets. Best yet, eliminating debt sets you up to build wealth!

God has money out there with your name on it! Isaiah 45:3 says, “I will give you the treasures of darkness and hidden riches of secret places, that you may know that I, the Lord, who call you by your name, am the God of Israel.” God wants you to find these “hidden riches” so you can be blessed and be a blessing!